U.S. futures started the week with a modest gain, with small caps leading the way. Last week’s gains were fueled by investor enthusiasm after Fed Chairman Jerome Powell’s dovish tone at Jackson Hole, which spurred investors to buy stocks, but the momentum has since faded. As of 8 a.m. ET, S&P 500 futures were up 0.1%, while Nasdaq 100 futures were in the red. Both indexes were up more than 1% on Friday after Powell’s Jackson Hole speech solidified the case for a rate cut next month. The debate now shifts to the size of the rate cut and what it means for the state of the economy. In premarket trading, NVDA, which reports earnings this week, rose about 1%, while Mag7 and Semiconductors both rose. Bond yields reversed declines to rise 3 basis points. Tracking a roughly 3% surge in oil prices After Israel launched a preemptive strike of 100 fighter jets against Hezbollah in Lebanon and declared a 48-hour state of emergency Libya’s eastern government announced on Monday morning that it was halting all oil production and exports. The yen erased all gains after rising to its highest since January in response to rising US yields. The dollar edged up and gold held near its all-time high. Bitcoin hit $65,000 for the first time in nearly three weeks. Macro data is focused on durable/capital goods, with NVDA earnings on Wednesday being a key event. Chairman Powell’s dovish Jackson Hole speech should provide a boost to risk assets this week.
In premarket trading, Guardant Health, which filed an open market agreement through Jefferies to sell up to $400 million worth of stock, fell 3%. SolarEdge Technologies rose 4% after Zvi Rand stepped down as CEO. Other stocks to watch in premarket trading include:
- Polysilicon maker Daqo New Energy (DQ) fell 4% after it reported second-quarter earnings that fell short of analysts’ average estimate.
- PDD Holdings (PDD) fell 15% after reporting weaker-than-expected sales, suggesting that the company’s growth is falling short of investors’ raised expectations.
- Xpeng ADR (XPEV) rose 3% after CEO He Xiaopeng said in a filing with the Hong Kong Stock Exchange that he had purchased 1 million of the company’s Class A shares in the open market at an average price of HK$27.13 per share.
Financial markets are positioning for lower U.S. borrowing costs after Fed Chairman Jerome Powell said “it’s time” to shift toward easier monetary policy. Traders are increasingly expecting a half-point rate cut in September, but a cut of that size would suggest the economy is headed for a hard landing, which could dampen demand for stocks.
“Having to cut interest rates sooner means the economy isn’t doing very well.“We’re seeing a lot of growth in the market,” Eleanor Taylor Jolidon, co-head of Swiss and global equities at Union Bancaire Privé, told Bloomberg TV. “A 50 basis point cut would reflect the weak data that caused some spook in markets at the end of July.”
Concerns over an escalating Middle East conflict following Israeli attacks on Hezbollah positions in southern Lebanon pushed some currencies into safe haven positions. Oil rose nearly 3%. The yen rose for a second straight day to hit its highest close since January, but then began tracking U.S. Treasury yields, which have risen in tandem with oil prices, with USDJPY now at a session high and down nearly 100 pips from its low.
Europe’s Stoxx 600 index was little changed, with trading volume at less than half its average. UK markets are closed for a public holiday. German business sentiment remained at its lowest level since February. The recovery since the start of the year has stalled, highlighting the dark shadow once again hanging over Europe’s largest economy. But there may be some support on the way when it comes to interest rates. The European Central Bank has signaled it may make further moves in September after cutting borrowing costs for the first time in June. The biggest movers on Monday were:
- Belgian power company Elia Group shares rose 3.8 percent after Oddo upgraded the company to outperform and said a new CEO and expanded capital spending plans could boost the stock.
- Instalco fell 4.6% after Kepler Chevreux downgraded the Swedish electrical equipment group to a buy recommendation and advised caution until there is evidence of end markets recovering.
- Shares in Meyerburger fell 56% after the Swiss solar panel maker said it was pausing construction of a solar cell factory in Colorado because it is now not economically viable.
The MSCI Asia Pacific Index rose for a third straight day, with Hong Kong and Australia leading the regional gains. The Hang Seng Index rose about 0.8% as tech stocks rose again. The Shanghai Composite Index was little changed. Japanese stocks were weak as the yen rose to below 144 yen to the dollar. Meanwhile, the People’s Bank of China left its one-year policy loan rate unchanged at 2.3%, after cutting it by 20 basis points in July. The decision underscores Beijing’s cautious approach to supporting the economy, even as bank lending has recorded a rare contraction amid sluggish demand. The central bank has been walking a delicate balance in recent months between stimulating growth and tempering bond-buying frenzy to tame financial risks.
In FX, the Bloomberg Dollar Index rose 0.1% after Friday’s biggest drop in nine months. The Australian and New Zealand dollars are at the bottom of the G10 currency scoreboard. USD/JPY rose 0.2%, narrowing a 0.6% decline the previous day to 143.45. This was the lowest since August 5 after Chairman Powell said the “time is now” for the Fed to cut benchmark interest rates from their 20-year highs, signaling yet that a long-awaited rate cut is imminent. EUR/USD’s 1-month risk reversal rose to 38 basis points, the most bullish sentiment since December 2020.
On the interest rate front, 10-year government bond yields rose 2 basis points to 3.812%, reversing a decline from the previous day on the back of a surge in oil prices. Eurozone 10-year government bond yields rose about 2 basis points yesterday after Germany’s IFO business confidence index came in weaker than expected. UK markets were closed for a bank holiday. Australia’s yield curve turned bullish, with 3-year government bond yields down 6 basis points. Japanese government bond futures remained firm after a rise in Powell bond yields on Friday. Treasury bond auctions scheduled for this week include $69 billion in 2-year bonds on Tuesday, $70 billion in 5-year bonds on Wednesday (with the possibility of an unscheduled resumption of auctions), and $44 billion in 7-year bonds on Thursday.
In commodity markets, crude oil surged nearly 3% as the Middle East braced for an escalation in conflict following Israeli attacks on Hezbollah positions in southern Lebanon. Ceasefire talks are taking place in Cairo and are expected to continue, according to the Associated Press. Meanwhile, the eastern-based Libyan government announced it would halt all crude oil production and exports. Gold continued to rise above $2,500 an ounce to trade near an all-time high of $2,525. Iron ore continued to rebound as huge Chinese inventories continued to draw down, a tentative sign that a period of severe oversupply is beginning to ease.
Looking at today’s calendar, the US economic calendar includes the July Durable Goods Orders Flash (8:30 AM) and Dallas Fed Manufacturing Activity for August (10:30 AM). Fed speakers include San Francisco Fed President Dale (2 PM).
Market Snapshot
- S&P 500 futures rose 0.2% to 5,662.25
- STOXX Europe 600 was little changed at 517.73
- MXAP rose 0.5% to 186.37
- MXAPJ rose 0.8% to 579.25
- The Nikkei average fell 0.7% to 38,110.22.
- The TOPIX fell 0.9% to 2,661.41.
- The Hang Seng Index rose 1.1% to 17,798.73.
- The Shanghai Composite Index was little changed at 2,855.52.
- The Sensex index rose 0.8% to 81,769.62.
- Australia’s S&P/ASX 200 rose 0.8% to 8,084.52
- The Korea Composite Stock Price Index fell 0.1% to 2,698.01.
- German 10-year government bond yields were little changed at 2.24%
- The euro was little changed at $1.1181
- Brent futures rose 1.1% to $79.88 a barrel
- Spot gold rose 0.4% to $2,523.20
- The US Dollar Index was little changed at 100.69.
Overnight headlines
- Stocks fell on Monday as rising tensions in the Middle East dampened bullish sentiment generated by the prospect of an imminent interest rate cut by the Federal Reserve.
- Hours after 100 Israeli warplanes swooped into southern Lebanon, destroying thousands of Hezbollah missile launchers in a preemptive strike, the Middle East braced for an escalating conflict that could involve Iran and its allied militias.
- The Canadian Labour Relations Board (CIRB) has imposed binding arbitration on the Teamsters union, CN and CPKC Railway, according to the Teamsters as quoted by Reuters. The Canadian Labour Relations Board has halted work stoppages at CN and CP Railway.
- According to X’s post, Canadian Labour Minister MacKinnon said the CIRB had made the decision to impose final and binding arbitration in the negotiations between CN Railway, CPKC and the Teamsters Canadian Railway Conference, and said he looked forward to the railroad company and employees resuming work as soon as possible.
- Canadian National Railway announced that it has received an order from the Canadian Railway Labour Board ordering binding arbitration between the company and the Canadian Railway Teamsters, meaning that a strike notice recently issued to the Canadian Railway Teamsters is no longer valid. Canadian Railway added that the Board has ordered that no further work stoppages, including lockouts or strikes, take place during the arbitration process, and that it will comply with the order extending the current collective bargaining agreement until a new agreement is reached between the parties.
A more detailed analysis of the global market by Newsquawk
Asia-Pacific stock markets started the week on a mixed note, following a rise on Wall Street after Fed Chairman Powell’s dovish shift. Meanwhile, the weekend was full of geopolitical news, with heavy artillery fire between Israel and Hezbollah resulting in no civilian casualties, but both sides expressing reluctance to further escalate tensions. The ASX 200 was firm, with real estate, tech and energy supporting the index, but further gains were limited by a fall in struggling sector healthcare. The Nikkei average was pressured by the recent strengthening of the yen after the Fed chairman’s dovish comments followed Friday’s hawkish comments from the Bank of Japan governor. Powell’s speech ultimately led to a weakening of the dollar and a fall in US Treasury yields. Yamaha Motor fell after reports that Yamaha would sell a 1.7% stake in Yamaha Motor, while auto stocks fell. The Hang Seng and Shanghai Composite were mixed, with Hong Kong supported by the real estate sector and mainland China languishing in a narrow range after the People’s Bank of China kept its delayed multi-level monetary easing at 2.30%. US stock futures were mostly lower at the reopening as contracts took a breather after Friday’s rally led by Powell. (ES -0.1%)
Top news from Asia
- Financial risks in key areas have been resolved in an orderly manner, People’s Bank of China Governor Pan said, adding that the government would encourage financial institutions to step up support for weak spots and key areas, according to Bloomberg.
- The People’s Bank of China injected RMB300 billion through the one-year MLF (Delayed MLF) at a maintenance rate of 2.30%.
- The People’s Bank of China injected RMB471 billion through seven-day reverse repo at a maintenance interest rate of 1.70%.
- According to Reuters, former Japanese Defense Minister Shigeru Ishiba has indicated his intention to run in the Liberal Democratic Party presidential election to be held on September 27th.
- The IMF’s chief economist said the Bank of Japan has room to further normalize monetary policy and gradually raise interest rates for some time, Reuters reported.
European stock exchanges started the week with the Euro Stoxx 50 down slightly, down -0.1%. Sectors are mixed, with no overarching theme. Technology is inching lower ahead of Nvidia’s release later in the week. DAX 40 is inching lower at -0.2%. Germany’s Ifo release was better than feared but not enough data and the stagnation/recession debate continues. In the US, futures are slightly higher but concrete is scarce as participants digest Jackson Hole and prepare for NVDA and PCE this week ahead of next week’s employment report. ES +0.2%, NQ +0.2%.
From Zerohedge.com
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